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How Do We Achieve a Steady State Economy? Daniel W. O’Neill SUSTAINABILITY RESEARCH INSTITUTE Complexity Economics for Sustainability, Cambridge December 4, 2009 The Problem Economic growth is a primary policy goal of most governments There is a fundamental conflict between economic growth and environmental protection Economic growth is no longer improving people’s lives in the developed world 2 What is Economic Growth? Increase in the production and consumption of goods and services Occurs when either population or per capita consumption increases Typically measured using GDP Total expenditure on all goods and services produced within a country 3 The History of Economic Growth The World, 1–2006 AD 7 7000 Population 6000 Per Capita GDP 5 5000 Can this really continue??? 4 4000 3 3000 2 2000 1 Source: Maddison 2008 Per Capita GDP (1990$) 1000 Year 2000 1800 1600 1400 1200 1000 800 600 400 0 200 0 0 Population (Billions) 6 4 The Economy and the Environment $$$ $ Resources Resources Waste Waste $ products products $$$ Waste Waste Waste 5 Can Technology Save Us? Can we decouple economic growth from resource use? Technological progress Switch from goods to services 250 The World Index (1980=100) 200 GDP 150 Material Use 100 Material Intensity 50 Source: SERI (www.materialflows.net) 0 1980 1985 1990 1995 2000 GDP growth has overwhelmed any decoupling 2005 6 Has It All Been Worth It? Imogen Shaw Happiness and GDP Percentage very happy United States Real income per person Percentage very happy Source: Layard (2005) ―Americans have been more successful decoupling GDP from happiness than in decoupling it from material and energy‖ —Peter Victor 8 Happiness (Index) Happiness and GDP Across Countries Source: Inglehart and Klingemann (2000) Income per Person ($) 9 The Alternatives Carrying Capacity Steady State Economy Time Growth and Collapse 10 What is a Steady State Economy (SSE) ? Stable population Stable per capita consumption Energy and material flows that are minimised and within ecological limits Constant stocks of natural and humanbuilt capital 11 Characteristics of a SSE Sustainable Scale Just Distribution Efficient Allocation High Quality of Life Energy and Use markets material flows Health, time, Limits to only where within ecological prosperity, inequality appropriate and limits community 12 Can We Really Do This? Model for the Canadian Economy (LowGrow) MACRO DEMAND Y = C+I+G+X-M Population Fiscal Position Employment, Capacity Utilisation GDP Investment Poverty Labour Force Forestry GHG Emissions Y – GDP C – Consumption I – Investment G – Government X – Exports M – Imports K – Capital L – Labour t – Time MACRO SUPPLY Y = f(K,L,t) Source: Peter Victor, York University 13 Can We Really Do This? Model for the Canadian Economy (LowGrow) Source: Peter Victor, York University Source: Peter Victor, York University 14 How Do We Achieve a SSE? Adopt the right macro-economic goal: the Steady State Economy Gradually change existing policies from growth towards a steady state 15 The CASSE Position Position statement on economic growth Purpose Recognises the conflict between growth and environmental protection Calls for the transition to a SSE Demonstrate the level of support for a SSE Advance the SSE in policy discussions Endorsements >4300 people, >110 organisations www.steadystate.org 16 How Do We Achieve a SSE? Adopt the right macro-economic goal: the Steady State Economy Gradually change existing policies from growth towards a steady state 17 1. Limit Resource Use Currently: Few controls on use of resources and emission of pollutants Montreal Protocol: limits ozone-depleting substances EU Emissions Trading Scheme: limits CO2 emissions In a SSE: Impose strict resource and emission caps Employ a cap–auction–trade system Caps set based on ecological criteria Permits auctioned by government Trade between industries to allow efficient allocation 18 2. Stabilise Population Currently: Natural increase is low in many developed countries Many developed countries encourage population growth via immigration, for ―economic reasons‖ In a SSE: Births plus immigration must equal deaths plus emigration In rich countries: Reduce the number of economic immigrants In poorer countries: Provide education and access to birth control for women 19 3. Limit Inequality Currently: Economic growth is used as an excuse to avoid dealing with poverty ―A rising tide lifts all boats‖ In a SSE: No growth, so no excuses! Finite resource use = Finite amount of wealth Must deal with distribution explicitly Need a minimum and maximum income 20 4. Reduce Working Hours Currently: Technological progress is used to increase production of goods and services A better widget machine = more widgets! In a SSE: We cannot increase production if it results in higher resource use Instead, shorten the working day, week, & year Same salaries but more leisure time! 21 5. Reform the Monetary System Currently: Fractional reserve banking Most money is created by private banks in the form of debt Increasing debt drives economic growth In a SSE: All money would be created and spent into existence by the government Banks would be prohibited from creating money, but would instead have to borrow existing money to lend it 22 6. Reform National Accounts Currently: Rely on GDP, which doesn’t distinguish between: Benefits and costs Quality and quantity In a SSE: What happens to GDP is not important Replace GDP with two sets of accounts: Well-being To be maximised Resource use To be minimised and kept within ecological limits 23 Conclusion There is a conflict between economic growth and environmental protection Economic growth is no longer improving people’s lives in the developed world We need to make the transition to a SSE Adopt the right macroeconomic goal Restrict resource use, stabilise population, limit inequality, reduce working hours, eliminate fractional reserve banking, and change the way we measure progress 24 Thank you! Dan O’Neill [email protected] SUSTAINABILITY RESEARCH INSTITUTE www.steadystate.org
